Releases

ARLINGTON, Va.--(BUSINESS WIRE)--May 1, 2015--
Graham Holdings Company (NYSE: GHC) today reported income from
continuing operations attributable to common shares of $21.4 million
($3.62 per share) for the first quarter of 2015, compared to $130.4
million ($17.56 per share) for the first quarter of 2014. Net income
attributable to common shares was $20.6 million ($3.48 per share) for
the first quarter ended March 31, 2015, compared to $132.1 million
($17.79 per share) for the first quarter of last year. Net income
includes $0.8 million ($0.14 per share) in losses and $1.7 million
($0.23 per share) in income from discontinued operations for the first
quarter of 2015 and 2014, respectively. (Refer to “Discontinued
Operations” discussion below.)

In connection with the Berkshire exchange transaction that closed on
June 30, 2014, the Company acquired 1,620,190 shares of its Class B
common stock, resulting in 21% fewer diluted shares outstanding in the
first quarter of 2015, versus the same period in 2014.

The results for the first quarter of 2015 and 2014 were affected by a
number of items as described in the following paragraphs. Excluding
these items, income from continuing operations attributable to common
shares was $29.0 million ($5.04 per share) for the first quarter of
2015, compared to $48.2 million ($6.38 per share) for the first quarter
of 2014. (Refer to the Non-GAAP Financial Information schedule at the
end of this release for additional details.)

Items included in the Company’s income from continuing operations for
the first quarter of 2015:

$10.7 million in restructuring charges and accelerated depreciation at
the education division (after-tax impact of $6.8 million, or $1.17 per
share);

$6.0 million gain on the formation of a joint venture (after-tax
impact of $3.6 million, or $0.50 per share); and

Revenue for the first quarter of 2015 was $846.1 million, up 1% from
$836.5 million in the first quarter of 2014. Revenues increased in other
businesses, while revenues were down at the education, cable and
television broadcasting divisions. The Company reported operating income
of $46.6 million for the first quarter of 2015, compared to $78.9
million for the first quarter of 2014. Operating results were down at
the education, television broadcasting and cable divisions, offset by
improvement in other businesses.

In November 2014, the Company announced that its Board of Directors
authorized management to proceed with plans for the complete legal and
structural separation of Cable ONE, Inc., a Graham Holdings subsidiary,
from Graham Holdings. Following the proposed transaction, Cable ONE will
be an independent, publicly traded company. The Company intends to
complete the proposed transaction later in 2015. The proposed
transaction will be structured as a tax-free spin-off of Cable ONE to
the stockholders of the Company. The transaction is contingent on the
satisfaction of a number of conditions, including completion of the
review process by the Securities and Exchange Commission of required
filings under applicable securities regulations, other applicable
regulatory approvals and the final approval of transaction terms by the
Company’s Board of Directors.

On February 12, 2015, Kaplan entered into a Purchase and Sale Agreement
with Education Corporation of America (ECA) to sell substantially all of
the assets of its KHE Campuses business, consisting of thirty-eight
nationally accredited ground campuses, and certain related assets, in
exchange for a preferred equity interest in ECA. The transaction is
contingent upon certain regulatory and accrediting agency approvals and
is expected to close in the third quarter of 2015.

Division Results

Education

Education division revenue totaled $500.6 million for the first quarter
of 2015, compared with revenue of $522.2 million for the same period of
2014. Kaplan reported an operating loss of $22.8 million for the first
quarter of 2015, compared to operating income of $1.9 million for the
first quarter of 2014. Operating results for the first quarter of 2015
include restructuring costs of $10.7 million.

A summary of Kaplan’s operating results for the first quarter of 2015
compared to 2014 is as follows:

Three Months Ended

March 31

(in thousands)

2015

2014

% Change

Revenue

Higher education

$

237,568

$

253,779

(6

)

Test preparation

69,226

67,804

2

Kaplan international

192,081

198,847

(3

)

Kaplan corporate and other

1,859

2,014

(8

)

Intersegment elimination

(132

)

(290

)

—

$

500,602

$

522,154

(4

)

Operating Income (Loss)

Higher education

$

593

$

13,144

(95

)

Test preparation

(4,334

)

(6,628

)

35

Kaplan international

7,717

9,858

(22

)

Kaplan corporate and other

(25,350

)

(12,632

)

—

Amortization of intangible assets

(1,507

)

(1,924

)

22

Intersegment elimination

32

44

—

$

(22,849

)

$

1,862

—

Kaplan Higher Education (KHE) includes Kaplan’s domestic postsecondary
education businesses, made up of fixed-facility colleges and online
postsecondary and career programs. KHE also includes the domestic
professional training and other continuing education businesses.

In 2012, KHE began implementing plans to close or merge 13 ground
campuses, consolidate other facilities and reduce its workforce. The
last two of these campus closures were completed in the second quarter
of 2014. In April 2014, KHE announced plans to close two additional
ground campuses, and in July 2014, KHE announced plans to close another
three campuses; KHE will teach out the current students and the campus
closures will be completed by the end of 2015. In July 2014, KHE also
announced plans to further reduce its workforce. In connection with
these and other plans, KHE incurred $2.8 million in restructuring costs
the first quarter of 2015, including severance ($1.1 million), lease
obligation losses ($0.9 million), accelerated depreciation ($0.7
million) and other items ($0.1 million).

In February 2015, Kaplan entered into a Purchase and Sale Agreement with
ECA to sell substantially all of the remaining assets of its KHE
Campuses business. The transaction is contingent upon certain regulatory
and accrediting agency approvals and is expected to close in the third
quarter of 2015. KHE results include revenue and operating losses
related to all of the KHE Campuses business as follows:

Three Months Ended

March 31

(in thousands)

2015

2014

Revenue

$

61,409

$

71,098

Operating loss

$

(9,358

)

$

(4,483

)

In the first quarter of 2015, KHE revenue declined 6% due largely to
declines in average enrollments at Kaplan University and KHE campuses
that reflect weaker market demand over the past year, lower average
tuition and the impact of closed campuses. The weaker market demand was
most pronounced at KHE’s ground campuses in non-degree vocational
programs. KHE operating results were down in the first quarter of 2015
due to revenue declines, increased marketing spending at Kaplan
University and restructuring costs in the first quarter of 2015.

New higher education student enrollments at KHE declined 11% in the
first quarter of 2015 (down 9% at Kaplan University and down 15% at the
Other Campuses). The decline reflects the generally lower demand across
KHE and the impact of closed campuses.

Total students at March 31, 2015, were down 8% compared to March 31,
2014, and increased 7% compared to December 31, 2014. A summary of
student enrollments is as follows:

As of

March 31,

December 31,

March 31,

2015

2014

2014

Kaplan University

45,680

42,469

47,109

Other Campuses

14,850

14,266

18,842

60,530

56,735

65,951

Kaplan University and Other Campuses enrollments at March 31, 2015 and
2014, by degree and certificate programs, are as follows:

As of March 31

2015

2014

Certificate

21.1

%

21.6

%

Associate’s

26.8

%

30.6

%

Bachelor’s

35.2

%

32.3

%

Master’s

16.9

%

15.5

%

100.0

%

100.0

%

Kaplan Test Preparation (KTP) includes Kaplan’s standardized test
preparation programs. KTP revenue increased 2% for the first quarter of
2015. Excluding revenues from acquired businesses, KTP revenue decreased
2% in the first quarter of 2015. Enrollment was down 1% for the first
quarter of 2015 due to declines in graduate programs, offset by growth
in pre-college programs. KTP operating results improved in the first
quarter of 2015 due to a reduction in operating expenses from tighter
cost controls.

Kaplan International includes English-language programs, and
postsecondary education and professional training businesses largely
outside the United States. Kaplan International revenue declined 3% in
the first quarter of 2015 due to the adverse impact of foreign exchange
rates and enrollment declines in English-language programs, offset by
growth in Australia and Singapore higher education programs. Kaplan
International operating income was down in the first quarter of 2015 due
to declines in English-language results, offset by improved results from
operations in Australia and Singapore.

Kaplan corporate and other represents unallocated expenses of Kaplan,
Inc.’s corporate office, other minor businesses and certain shared
activities. In the first quarter of 2015, Kaplan corporate recorded $7.6
million in restructuring charges, including accelerated depreciation
($6.5 million) and lease obligation losses ($1.1 million), related to
office space managed by Kaplan corporate. Additional estimated
accelerated depreciation ($9.7 million) and lease obligation losses
($4.2 million) are expected to be recorded in the second quarter of
2015. Kaplan corporate expenses also increased in the first quarter of
2015 due to increased spending for new business initiatives and
replacement of its human resource system.

Kaplan continues to evaluate its cost structure and is pursuing
additional cost savings opportunities. This will result in additional
restructuring plans and related costs in 2015 of approximately $21
million.

Cable

Cable division revenue declined 3% in the first quarter of 2015 to
$198.7 million, from $203.9 million for the first quarter of 2014, due
to 5% fewer customers and 9% fewer Primary Service Units (PSUs).
Operating expenses in the first quarter declined 2%, from $162.8 million
to $159.6 million, due to fewer customers and reduced programming costs,
offset by an increase in depreciation expense. Cable division operating
income declined 5% in the first quarter of 2015 to $39.1 million, from
$41.2 million in the first quarter of 2014.

The cable division continues its focus on higher margin businesses,
namely high-speed data and business sales. Residential high-speed data
revenue increased 5% in the first quarter of 2015 on a 2% customer gain
and business sales increased 17% on a 16% increase in business
customers. Overall, business sales comprised 10% of total revenue for
the first quarter of 2015, compared with 9% of total revenue for the
first quarter of 2014. Due to rapidly rising programming costs and
shrinking margins, video sales now have less value and emphasis (video
PSUs were down 20% over the first quarter of last year) and programming
costs have been reduced significantly.

The cable division also continues its focus on higher lifetime value
customers who are less attracted by discounting, require less support
and churn less. Operating income margins are down slightly to 19.7% in
the first quarter of 2015 from 20.2% in the first quarter of 2014.

A summary of PSUs and total customers is as follows:

As of March 31

2015

2014

Video

421,331

524,563

High-speed data

496,579

484,168

Voice

145,393

165,859

Total Primary Service Units (PSUs)

1,063,303

1,174,590

Total Customers

678,091

714,010

Television Broadcasting

Revenue at the television broadcasting division decreased 2% to $83.6
million in the first quarter of 2015, from $85.7 million in the same
period of 2014; operating income for the first quarter of 2015 was down
13% to $38.6 million, from $44.4 million in the same period of 2014. The
decrease in revenue is due to a $1.7 million decrease in political
advertising revenue compared to the first quarter of 2014 and $9.5
million in incremental winter Olympics-related advertising revenue at
the Company’s NBC affiliates booked in the prior year, offset by
revenues from the Super Bowl at the Company's NBC affiliates in February
2015 and a $2.3 million in increased retransmission revenues. The
decline in operating income is due to the revenue decline and an
increase in spending on digital initiatives.

Other Businesses

Other businesses includes the operating results of The Slate Group and
Foreign Policy Group, which publish online and print magazines and
websites; SocialCode, a marketing solutions provider helping companies
with marketing on social-media platforms; Celtic Healthcare, a provider
of home health and hospice services; Forney, a global supplier of
products and systems that control and monitor combustion processes in
electric utility and industrial applications; and Trove, a digital
innovation team that builds products and technologies in the news space.
Other businesses also includes a number of businesses acquired during
2014. These businesses include:

- VNA-TIP Healthcare of Bridgeton, MO, operating home health and hospice
service in Missouri and Illinois;

- Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and
other linear motion systems; and

- Residential Healthcare Group, Inc. (Residential), a leading provider
of skilled home health care and hospice services in Michigan and
Illinois.

In January 2015, Celtic Healthcare and Allegheny Health Network formed a
joint venture to combine each other’s home health and hospice assets in
the western Pennsylvania region. Celtic manages the operations of the
joint venture for a fee and holds a 40% interest. The pro rata operating
results of the joint venture are included in the Company’s equity in
earnings of affiliates. In connection with this transaction, the Company
recorded a noncash pre-tax gain of $6.0 million in the first quarter of
2015 that is included in Other Non-Operating Income.

The increase in revenues and operating results for the first quarter of
2015 is primarily due to newly acquired businesses in 2014, and
increased revenues and improved results at SocialCode and Slate.

Corporate Office

Corporate office includes the expenses of the Company’s corporate
office, the pension credit for the Company’s traditional defined benefit
plan and certain continuing obligations related to prior business
dispositions. In the first quarter of 2014, the corporate office
implemented a Separation Incentive Program that resulted in early
retirement program expense of $4.5 million, which is being funded from
the assets of the Company’s pension plan. Excluding early retirement
program expense, the total pension credit for the Company’s traditional
defined benefit plan was $17.1 million and $22.4 million in the first
three months of 2015 and 2014, respectively.

Without the pension credit and early retirement program expense,
corporate office expenses increased in the first quarter of 2015 due
primarily to higher executive compensation costs and expenses related to
the cable spin-off transaction.

Equity in (Losses) Earnings of Affiliates

At March 31, 2015, the Company held a 40% interest in the Celtic joint
venture and Residential Home Health Illinois, a 42.5% interest in
Residential Hospice Illinois and interests in several other affiliates.
At March 31, 2014, the Company held a 16.5% interest in Classified
Ventures, LLC (CV) and interests in several other affiliates. On October
1, 2014, the Company and the remaining partners in CV completed the sale
of their entire stakes in CV.

The Company recorded equity in losses of affiliates of $0.4 million for
the first quarter of 2015, compared to income of $4.1 million for the
first quarter of 2014. The equity in earnings of affiliates for the
first quarter of 2014 was from the Company’s CV investment.

Other Non-Operating (Expense) Income

The Company recorded total other non-operating expense, net, of $1.1
million for the first quarter of 2015, compared to income of $133.3
million for the first quarter of 2014. First quarter 2015 non-operating
expense included $6.8 million in unrealized foreign currency losses and
other items, offset by a $6.0 million gain on the Celtic joint venture
transaction. The first quarter 2014 non-operating income, net, included
a pre-tax $127.7 million gain on the sale of the headquarters building,
$5.0 million in unrealized foreign currency gains and other items.

Net Interest Expense and Related Balances

The Company incurred net interest expense of $8.0 million for the first
quarter of 2015, compared to $8.2 million for the first quarter of 2014.
At March 31, 2015, the Company had $404.8 million in borrowings
outstanding at an average interest rate of 7.2% and cash, marketable
equity securities and other investments of $865.9 million.

Provision for Income Taxes

The effective tax rate for income from continuing operations for the
first quarter of 2015 was 39.1%, compared to 37.2% for the first quarter
of 2014.

Discontinued Operations

In the third quarter of 2014, Kaplan completed the sale of three of its
schools in China that were previously part of Kaplan International. An
additional school was sold by Kaplan in January 2015.

In the second quarter of 2014, the Company closed on the Berkshire
exchange transaction, which included the disposition of WPLG, the
Company's Miami-based television station.

As a result of these transactions, income from continuing operations
excludes the operating results and related loss on dispositions of these
businesses, which have been reclassified to discontinued operations, net
of tax, for all periods presented.

Earnings (Loss) Per Share

The calculation of diluted earnings per share for the first quarter of
2015 was based on 5,790,768 weighted average shares outstanding,
compared to 7,352,230 for the first quarter of 2014. At March 31, 2015,
there were 5,831,089 shares outstanding and the Company had remaining
authorization from the Board of Directors to purchase up to 159,219
shares of Class B common stock. The earnings per share computations for
the first quarter of 2015 were favorably impacted by the 1,620,190
common shares repurchased as part of the Berkshire exchange transaction.

Forward-Looking Statements

This report contains certain forward-looking statements that are based
largely on the Company’s current expectations. Forward-looking
statements are subject to certain risks and uncertainties that could
cause actual results and achievements to differ materially from those
expressed in the forward-looking statements. For more information about
these forward-looking statements and related risks, please refer to the
section titled “Forward-Looking Statements” in Part I of the Company’s
Annual Report on Form 10-K.

GRAHAM HOLDINGS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended

March 31

%

(in thousands, except per share amounts)

2015

2014

Change

Operating revenues

$

846,148

$

836,541

1

Operating expenses

736,279

701,738

5

Depreciation of property, plant and equipment

58,545

53,217

10

Amortization of intangible assets

4,769

2,717

76

Operating income

46,555

78,869

(41

)

Equity in (losses) earnings of affiliates, net

(404

)

4,052

—

Interest income

559

599

(7

)

Interest expense

(8,521

)

(8,820

)

(3

)

Other (expense) income, net

(1,105

)

133,273

—

Income from continuing operations before income taxes

37,084

207,973

(82

)

Provision for income taxes

14,500

77,400

(81

)

Income from continuing operations

22,584

130,573

(83

)

(Loss) income from discontinued operations, net of tax

(784

)

1,732

—

Net income

21,800

132,305

(84

)

Net (income) loss attributable to noncontrolling interests

(774

)

219

—

Net income attributable to Graham Holdings Company

21,026

132,524

(84

)

Redeemable preferred stock dividends

(420

)

(426

)

(1

)

Net Income Attributable to Graham Holdings Company Common
Stockholders

$

20,606

$

132,098

(84

)

Amounts Attributable to Graham Holdings Company Common
Stockholders

Income from continuing operations

$

21,390

$

130,366

(84

)

(Loss) income from discontinued operations, net of tax

(784

)

1,732

—

Net income

$

20,606

$

132,098

(84

)

Per Share Information Attributable to Graham Holdings Company
Common Stockholders

Basic income per common share from continuing operations

$

3.64

$

17.62

(79

)

Basic (loss) income per common share from discontinued operations

(0.13

)

0.23

—

Basic net income per common share

$

3.51

$

17.85

(80

)

Basic average number of common shares outstanding

5,704

7,275

Diluted income per common share from continuing operations

$

3.62

$

17.56

(79

)

Diluted (loss) income per common share from discontinued operations

(0.14

)

0.23

—

Diluted net income per common share

$

3.48

$

17.79

(80

)

Diluted average number of common shares outstanding

5,791

7,352

GRAHAM HOLDINGS COMPANY

BUSINESS SEGMENT INFORMATION

(Unaudited)

Three Months Ended

March 31

%

(in thousands)

2015

2014

Change

Operating Revenues

Education

$

500,602

$

522,154

(4

)

Cable

198,723

203,921

(3

)

Television broadcasting

83,564

85,651

(2

)

Other businesses

63,259

24,913

—

Corporate office

—

—

—

Intersegment elimination

—

(98

)

—

$

846,148

$

836,541

1

Operating Expenses

Education

$

523,451

$

520,292

1

Cable

159,647

162,759

(2

)

Television broadcasting

45,002

41,265

9

Other businesses

68,421

35,660

92

Corporate office

3,072

(2,206

)

—

Intersegment elimination

—

(98

)

—

$

799,593

$

757,672

6

Operating Income (Loss)

Education

$

(22,849

)

$

1,862

—

Cable

39,076

41,162

(5

)

Television broadcasting

38,562

44,386

(13

)

Other businesses

(5,162

)

(10,747

)

52

Corporate office

(3,072

)

2,206

—

$

46,555

$

78,869

(41

)

Depreciation

Education

$

18,528

$

16,416

13

Cable

36,348

33,787

8

Television broadcasting

2,109

1,994

6

Other businesses

1,302

520

—

Corporate office

258

500

(48

)

$

58,545

$

53,217

10

Amortization of Intangible Assets

Education

$

1,507

$

1,924

(22

)

Cable

31

35

(11

)

Television broadcasting

63

—

—

Other businesses

3,168

758

—

Corporate office

—

—

—

$

4,769

$

2,717

76

Pension Expense (Credit)

Education

$

3,947

$

4,143

(5

)

Cable

975

864

13

Television broadcasting

391

320

22

Other businesses

193

164

18

Corporate office

(16,938

)

(17,679

)

(4

)

$

(11,432

)

$

(12,188

)

(6

)

GRAHAM HOLDINGS COMPANY

EDUCATION DIVISION INFORMATION

(Unaudited)

Three Months Ended

March 31

%

(in thousands)

2015

2014

Change

Operating Revenues

Higher education

$

237,568

$

253,779

(6

)

Test preparation

69,226

67,804

2

Kaplan international

192,081

198,847

(3

)

Kaplan corporate and other

1,859

2,014

(8

)

Intersegment elimination

(132

)

(290

)

—

$

500,602

$

522,154

(4

)

Operating Expenses

Higher education

$

236,975

$

240,635

(2

)

Test preparation

73,560

74,432

(1

)

Kaplan international

184,364

188,989

(2

)

Kaplan corporate and other

27,209

14,646

86

Amortization of intangible assets

1,507

1,924

(22

)

Intersegment elimination

(164

)

(334

)

—

$

523,451

$

520,292

1

Operating Income (Loss)

Higher education

$

593

$

13,144

(95

)

Test preparation

(4,334

)

(6,628

)

35

Kaplan international

7,717

9,858

(22

)

Kaplan corporate and other

(25,350

)

(12,632

)

—

Amortization of intangible assets

(1,507

)

(1,924

)

22

Intersegment elimination

32

44

—

$

(22,849

)

$

1,862

—

Depreciation

Higher education

$

4,828

$

7,740

(38

)

Test preparation

2,890

3,784

(24

)

Kaplan international

4,654

4,680

(1

)

Kaplan corporate and other

6,156

212

—

$

18,528

$

16,416

13

Pension Expense

Higher education

$

2,532

$

2,628

(4

)

Test preparation

775

722

7

Kaplan international

106

89

19

Kaplan corporate and other

534

704

(24

)

$

3,947

$

4,143

(5

)

NON-GAAP FINANCIAL INFORMATIONGRAHAM HOLDINGS COMPANY(Unaudited)

In addition to the results reported in accordance with accounting
principles generally accepted in the United States (GAAP) included in
this press release, the Company has provided information regarding
income from continuing operations, excluding certain items described
below, reconciled to the most directly comparable GAAP measures.
Management believes that these non-GAAP measures, when read in
conjunction with the Company’s GAAP financials, provide useful
information to investors by offering:

the ability to make meaningful period-to-period comparisons of the
Company’s ongoing results;

the ability to identify trends in the Company’s underlying business;
and

a better understanding of how management plans and measures the
Company’s underlying business.

Income from continuing operations, excluding certain items, should not
be considered substitutes or alternatives to computations calculated in
accordance with and required by GAAP. These non-GAAP financial measures
should be read only in conjunction with financial information presented
on a GAAP basis.

The following table reconciles the non-GAAP financial measures to the
most directly comparable GAAP measures:

Three Months Ended

March 31

(in thousands, except per share amounts)

2015

2014

Amounts attributable to Graham Holdings Company Common
Stockholders

Income from continuing operations, as reported

$

21,390

$

130,366

Adjustments:

Restructuring and early retirement charges

6,841

2,878

Gain on the formation of a joint venture

(3,643

)

—

Sale of headquarters building

—

(81,836

)

Foreign currency loss (gain)

4,370

(3,229

)

Income from continuing operations, adjusted (non-GAAP)

$

28,958

$

48,179

Per share information attributable to Graham Holdings Company
Common Stockholders

Diluted income per common share from continuing operations, as
reported

$

3.62

$

17.56

Adjustments:

Restructuring and early retirement charges

1.17

0.39

Gain on the formation of a joint venture

(0.50

)

—

Sale of headquarters building

—

(11.13

)

Foreign currency loss (gain)

0.75

(0.44

)

Diluted income per common share from continuing operations, adjusted
(non-GAAP)

$

5.04

$

6.38

The adjusted diluted per share amounts may not compute due to
rounding.